Oil prices slip as $50 level sparks new output fears

Oil prices at or near $50 could spur more US shale output

Oil prices

Oil prices fell and the US dollar rose in trading on Friday morning. Repsol photo.

By Barani Krishnan

NEW YORK, May 27 (Reuters) – Oil prices dipped for a second day in a row on Friday as some investors took profit on a surge to seven-month highs while others worried about higher production with the market hovering near $50 a barrel.

A stronger dollar also weighed on demand for dollar-denominated oil from holders of other currencies. The dollar spiked after Federal Reserve Chair Janet Yellen said a U.S. rate hike was probably appropriate in coming months.

A three-day weekend for the United States, owing to Monday’s Memorial Day holiday, further discouraged investors from holding bullish bets.

“People are worried crude production will come roaring back at these prices,” said Phil Flynn, energy markets analyst at the Price Futures Group in Chicago.

“But I also think we are down because of higher interest rate concerns and the longer weekend,” Flynn said. “You don’t want to be long on a $50 position when oil could be below $48 by the time the new week opens.”

Brent crude settled down 27 cents, or 0.5 percent, at $49.32 a barrel. It rose to $50.51 in the previous session, its highest since early November.

U.S. crude slipped 15 cents, or 0.3 percent, to settle at $49.33. It hit an October high of $50.21 on Thursday.

On the week, Brent rose 1 percent and U.S. crude about 3 percent, helped by gains from earlier this week.

With prices finally hitting $50, both Brent and U.S. crude are likely to face technical barriers in the next three to five weeks, analysts said. Producers and speculators have also been loading up on options contracts of U.S. crude to protect themselves from downside risk.

Oil pushed past $50 after supply disruptions from Canadian wildfires and militant attacks in Nigeria helped cut global daily output by 4 million barrels.

“Most of these outages are unlikely to last,” UBS analyst Giovanni Staunovo said, anticipating resumption of supply from those sources as well as higher production from the Organization of the Petroleum Exporting Countries.

Dominick Chirichella, senior partner at New York’s Energy Management Institute, said U.S. crude output could rise by an estimated 300,000 to 400,000 barrels per day as shale producers put drilled but uncompleted wells, or DUCs, into production.

The slide in the U.S. oil rig count has virtually halted as well, with just 2 rigs idled this week, data from industry firm Baker Hughes showed on Friday.

In the coming week, investors will watch the outcome of an OPEC meeting for signs of more output from Saudi Arabia and Iran in their battle for market share.

(Additional reporting by Dmitry Zhdannikov; in LONDON and Keith Wallis in SINGAPORE; Editing by Lisa Von Ahn and Andrew Hay)

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